Animated film studio Dreamworks (NASDAQ:DWA) this evening posted first-quarter results. The owner of the Shrek and How to Train Your Dragon franchises managed to beat Wall Street's sales expectations. However, it booked a surprisingly large quarterly loss, which sent the stock initially lower in after-hours trading.
Here's a look at how the headline results stacked up against analyst targets:
|Revenue||$165 million||$167 million|
|Profit||-$0.45 per share||-$0.064 per share|
Home isn't profitable -- yet
Sales rose 13%, mainly because of growth in the company's feature-film segment. Last year's releases, How to Train Your Dragon 2 and Mr. Peabody & Sherman, posted solid revenue gains from home-entertainment sales. DreamWorks' only release of this year, Home, didn't contribute much of anything to the quarter's results, despite having passed $300 million in global receipts. DreamWorks still expects the film to be profitable, though, with revenue beginning to hit the books in the second quarter of the year.
The TV business was flat at $18 million and suffered a decline in profitability, as the company spent more on marketing to support new shows. DreamWorks delivered 40 episodes to Netflix last year across four series. In 2015, it plans to produce Season Two of all of these shows, along with seven new titles. Management believes the TV business will reach $250 million in sales this year, with hefty profit margins above 30%. But DreamWorks didn't make much progress toward those figures in the first quarter.
Massive restructuring charges
Meanwhile, DreamWorks' restructuring efforts continued to drain profits from the bottom line. Costs associated with reducing the workforce and closing one of its offices amounted to $32 million -- on top of the $210 million charge it booked in the fourth quarter of last year.
The payoff should come in the form of a lower overhead burden. And DreamWorks will also be able to focus all of its efforts on producing two movies a year beginning in 2016, down from the prior three-movie-per-year pace. Finally, management is targeting lower per-film production costs beginning with the movie Trolls, due out next year. Trolls is projected to cost $120 million to develop, compared with the $135 million that DreamWorks' past few films required.
"While 2015 is a transitional year for us, the worldwide box-office performance of Home serves as early evidence that the changes we're making in the core feature animation business are working," said CEO Jeffrey Katzenberg in a press release announcing the results. With the company's only feature film done with its box-office run, the rest of the year's profits will lean heavily on the TV and consumer-products business. In the meantime, management is focused on ensuring that next year's releases, Kung Fu Panda 3 in March and Trolls in November, have all the support they need to be box-office hits.